Issue #129, May/June 2003

Anatomy of a Merger

How two CDCs merged to create the Neighborhood Housing Services of Greater Nashua.

By John Emmeus Davis

Nonprofit community-based housing development organizations have only recently become significant players in the provision of affordable housing. Their growth has been rapid, but uneven. Some communities have multiple nonprofits of varying size serving a similar geographic area, producing a modest but respectable number of housing units, competing for constituents, funds and development opportunities and struggling to survive. The organizations that find themselves in this uncomfortable situation often confront a special set of challenges. The loss of a single staff person, the delay of a single project or the adverse decision of a single funder can threaten not only their short-term chances for success, but also their long-term prospects for survival.

The recent merger of two nonprofit housing development corporations in Nashua, NH provides an opportunity to examine one path these organizations can take to increase the odds of survival. The process of merging French Hill Neighborhood Housing Services (FHNHS) and the Greater Nashua Housing and Development Foundation (GNHDF) consumed nearly a year and a half and resulted in a new organization, Neighborhood Housing Services of Greater Nashua.

Incubation: Creating the Conditions for Collaboration

Nashua, pop. 85,000, is the second largest city in New Hampshire and offers safe neighborhoods, pleasant surroundings and a downtown undergoing reinvestment and revitalization. In 1997, Money magazine named Nashua one of the best places to live in the United States.

However, a population boom in the 1980s had an adverse impact on lower-income residents seeking housing they could afford. The price of housing spiraled higher every year. Homeownership moved out of reach, even for moderate-income households. In the rental market, vacancies moved downward and rents moved upward.

This upward pressure on housing prices was felt most keenly in those neighborhoods with higher concentrations of poverty. Two in particular, French Hill and Tree Streets, saw housing prices increase rapidly in the early 1980s without any improvement in housing conditions. To tackle these problems, two nonprofit housing development organizations were founded in Nashua during the late 1980s. Both were engaged in the provision of affordable housing, committed to neighborhood revitalization as an integral part of their housing work and received funding from the same pots of federal, state and municipal money.

But there were also differences. The firstborn of these Nashua nonprofits, GNHDF, was established in 1988. Its founders and directors were members of municipal government, the public housing authority, the business and banking community and social services organizations who had grown increasingly concerned about the lack of affordable rental housing throughout the city. With only an executive director and a part-time administrative assistant, GNHDF got off to a slow start, developing only 27 rental units between 1988 and 1997. By the mid-1990s, however, as GNHDF began concentrating its efforts on the Tree Streets neighborhood, its productivity began to climb.

Nashua’s other nonprofit housing developer, French Hill Neighborhood Housing Services (FHNHS), was incorporated in 1991. It received a NeighborWorks charter soon after. French Hill, its target area, lay on the opposite side of the central business district from the Tree Streets neighborhood. From the start, FHNHS was distinguished from GNHDF by structure and program. Unlike GNHDF, which was governed by a self-perpetuating board, FHNHS was a membership organization with a majority of its board drawn from its members and elected by them. Moreover, FHNHS focused not on developing rental housing but on rehabilitating owner-occupied housing and expanding homeownership within its target area.

FHNHS started out slowly too. Not until 1993 did it have a three-person staff in place and its first programs up and running. During the next four years, it helped a dozen families buy homes in the French Hill neighborhood. Another two dozen homeowners received home improvement loans. FHNHS’s Purchase, Rehab, Resale Program was its most productive program. Between 1994 and 1997, 112 problem properties were placed in the hands of owner-occupants with FHNHS’s help.

By 1997, strains began showing, both within and between the two organizations. GNHDF had dozens of new units in development, taxing the capacity of what was essentially a one-person staff. At FHNHS, by contrast, productivity was beginning to fall. The New Hampshire Housing Futures Fund, a major funder for both organizations, began to question whether the time had come to stop supporting two organizations in Nashua. But after assessing the situation, the fund decided that the time was not yet ripe to discuss the possibility of a merger.

During the year that followed, the Neighborhood Reinvestment Corporation (NRC) began to raise questions about FHNHS’s falling productivity. FHNHS’s own board of directors began to raise questions about the director’s performance. He resigned in 1998. His departure prompted a number of people to consider healing the rift between the two organizations.

Exploration: Assessing the Potential for Collaboration

A few months after the departure of FHNHS’s director, Debbie Miller, FHNHS’s board’s president, arranged a meeting with Bridgett Beldon-Jette, GNHDF’s director, to ask about the chances of their organizations working together. Beldon-Jette’s favorable response encouraged Miller to help convene a meeting to discuss the possibility of collaboration.

Representatives from FHNHS and GNHDF came together in February 1999. Expectations were modest, but the participants soon discovered that they had no antagonism toward their longtime competitors. Even more surprising, they arrived at this meeting predisposed toward collaboration. It was decided that another meeting should be held to discuss the possibility of a merger.

A conscious effort was made to broaden participation, bringing key people from each organization into the discussion. Three representatives from the Neighborhood Reinvestment Corporation were also invited: LaRayne Hebert, NRC’s field representative for its New Hampshire affiliates; Nelson Merced, the newly named director for NRC’s district office in Boston; and Ken Wade, the soon-to-leave district director. Mike LaFontaine from the NH Affordable Housing Network and Nike Speltz from the Housing Futures Fund (HFF) rounded out the list of attendees.

The NRC representatives described the NeighborWorks network and membership requirements, and indicated that NRC would support a merger, including paying for a facilitator. They were quick to caution that there was no guarantee that the organization resulting from the merger would meet the guidelines for NeighborWorks® affiliation. The meeting ended with agreement that the discussion should continue, with the underlying assumption that merging the two organizations was the ultimate goal. Although loss of control and organizational identity remained paramount concerns, it was believed that a merger might afford the opportunity to expand programming and geography. With the approval of both boards, a Merger Committee was created.

Negotiation: Planning the Merger

The newly constituted Merger Committee was composed of three representatives from each of the two organization’s board of directors, a local attorney who sat on both boards, the executive director for GNHDF and the interim director for FHNHS. Two other individuals participated as non-voting “resource people,” Mike LaFontaine and LaRayne Hebert. I also attended, having been hired by NRC and the HFF to facilitate the process of planning the merger.

Mission
The issue of what the mission should be for a merged FHNHS/GNHDF was rather easily resolved, since their missions were so similar and diverged only in three significant respects. First, the FHNHS service area was confined to a single neighborhood; GNHDF was open to serving Nashua and “surrounding communities.” Secondly, FHNHS directed its housing development efforts toward homeownership and housing rehabilitation; GNHDF focused on rental housing and the construction of new housing. Third, GNHDF was committed to carrying out the housing portion of its corporate mission through the development of housing that was “permanently affordable;” FHNHS had never made a comparable commitment, either in its mission or its programs, because it chose not to limit whatever equity gains a homeowner might realize upon resale of her home.

Some of the distance between these missions was bridged by the addition of three words to the mission statement that had long been used by GNHDF. The Merger Committee proposed that the mission should read as follows (their added words are highlighted):

The mission of [the merged organization] is to work in cooperation with other public and private enterprises to develop and preserve affordable housing and promote the social welfare of persons in Nashua, New Hampshire and surrounding communities in order to accomplish three goals: Assist very low, low and moderate-income families and individuals in achieving economic self-sufficiency and family stability through permanently affordable rental housing and homeownership. Empower residents to become involved in the solution to their housing and neighborhood needs. Revitalize overcrowded, substandard and unsafe housing and promote neighborhood improvement and stability.

The committee was not ready to take a position on the potentially divisive issue of permanent affordability. It finessed this issue by placing the modifying phrase “permanently affordable” immediately before “rental housing.” Such an arrangement of phrases allowed the commitment to permanent affordability to be construed as applying either to rental housing alone or to all of the housing to be developed by the merged organization.

After reviewing the full array of products and services presently offered by FHNHS and GNHDF, the Merger Committee recommended keeping them all. The highest priority, in the committee’s mind, was geographic parity – equalizing the array of services between the two target neighborhoods.

Permanent Affordability
By the end of their third meeting, members of the Merger Committee were ready to confront the issue they had glossed over during their earlier discussion: whether all of the housing developed in the future should be permanently affordable. The ensuing debate weighed a policy preference for preserving and recycling scarce subsidies against a programmatic preference for retaining flexibility. After a spirited discussion, the committee recommended the following affordability policy for the merged organization:

• All rental housing under the organization’s ownership or control would remain permanently affordable.
• Owner-occupied housing, either assisted or developed by the merged organization, would be encumbered by varying degrees of subsidy retention or subsidy recapture, as determined by the requirements of any outside funders providing the subsidy.
• In the absence of retention or recapture conditions imposed by an outside funder, the merged organization would seek to retain affordability for successive generations of homeowners.

Board of Directors
Not unexpectedly, more time was spent debating the composition and selection of the merged organization’s board of directors than was devoted to any other topic during phase two.

The Merger Committee agreed that the board of the new organization should conform to NRC’s minimum requirement of 51 percent resident representation for NeighborWorks affiliation by the new entity. They then settled on a 17-member board of directors: four representatives from the French Hill target area; four representatives from the Tree Streets target area; one representative from an area outside of the target areas; one non-elected municipal or state official; three business representatives, including one from a private financial institution and an attorney; and four at-large representatives.

Staffing Plan
The committee began cautiously discussing what sort of staff the organization might need to fulfill its mission and administer its programs, and considered the ticklish question of how existing staff should be treated in filling these positions. No staff was present for this discussion.

Organizational loyalties clouded this discussion from the very beginning. No one on the Merger Committee was willing to argue that some staff should stay and some should go. They merely followed the path of least resistance in proposing the following plan for staffing the merged organization: “Existing GNHDF and FHNHS staff will be offered their current positions within the post-merger organization. They will also be given the first shot at any new positions.”

Corporate Structure
It became clear that the time had come to retain the services of an attorney who could advise both boards on issues related to completing the merger, transferring assets and establishing the post-merger organization. A local attorney was asked what would be the best corporate structure for the merger. His preliminary advice was that it would be more reasonable – and less expensive – to amend the articles and bylaws of GNHDF and transfer the assets of FHNHS to the corporate shell of GNHDF, rather than create a new corporation to which the assets of both organizations would be transferred.

Tasks and Timeline for Completing the Merger

At the committee’s final meeting, I handed out a draft timeline entitled “GNHDF/FHNHS Merger: What’s Next?” Committee members agreed that the legal consolidation of assets, organizations and staffs would take time and would likely not be completed until later in the coming year. However, they wanted the two organizations to begin functioning in a consolidated fashion much sooner. Also, it was agreed that both boards would be asked to appoint representatives to a “Merger Steering Committee” that would be empowered to “take all actions necessary” to complete the merger.

Two weeks after the Merger Committee’s final meeting, I prepared and distributed to both boards a packet containing a detailed summary of the committee’s recommendations, a revised timeline for completing the merger and a post-merger operating budget. Both boards approved the recommendations.

Implementation: Completing the Merger

One of the prizes of a merger was the chance to win a NeighborWorks charter for the new organization. It was still an open question whether NRC would be willing to convey FHNHS’s existing membership in the NeighborWorks network to the post-merger organization that would be inheriting FHNHS’s other assets, or whether a whole new review and chartering process would be required.

There were also questions about the soundness of the organizational inheritance. Were there problems lurking in the property portfolio of GNHDF or the loan portfolio of FHNHS? Were the personnel inherited from both organizations capable of achieving the higher levels of productivity, efficiency and sustainability that the merger’s leaders and funders envisioned?

Finding answers to these questions was the responsibility of the Steering Committee and the NRC program review team that was headed to Nashua to examine the operations of both organizations. The Steering Committee had the authority to monitor and supervise the operations of both organizations during the transition, and functioned like a board of directors. NRC hired Carolyn Benthien, a local organizational development consultant, to assist the committee with its work. Committee members accepted Benthien’s argument that it was their responsibility to make detailed decisions about personnel policies, job descriptions and roles and responsibilities of the new board during the pre-merger period. Their priorities were to resolve these issues, name the new organization and decide the best way to complete the merger.

Delays

Initially the Steering Committee anticipated that their work would take 60 to 90 days and be completed by the end of February 2000. However, the merger was not legally consummated until July 1, 2001; the separate staffs of the two organizations did not function as a single, unified staff until November.

Three obstacles slowed implementation. First, a definitive legal decision on the best way to merge was not forthcoming for seven months. Another obstacle was the committee’s discovery that job descriptions, personnel policies and performance evaluations for the staff of both organizations were woefully inadequate. The final delay resulted from the Merger Committee’s recommendation that the offices owned and occupied by FHNHS become the corporate headquarters of the merged organization, while retaining a satellite office at the former site of GNHDF’s office. The executive director for GNHDF refused to re-locate to French Hill until a community organizer was hired to staff the satellite office, a process that diverted the Steering Committee’s attention from other merger matters.

By the start of the new year, job descriptions were nearly complete for all employees, and the roles and responsibilities of board members had been developed. Personnel policies had been drafted and distributed for the committee’s review. And, after much discussion, a name had been selected for the new organization: Neighborhood Housing Services of Greater Nashua (NHSGN).

The Steering Committee met one more time in January to review final drafts of the job descriptions and personnel policies and to approve salary ranges for each position. The personnel committee was given the authority to present these job descriptions and salary ranges to the existing staff of FHNHS and GNHDF and explore their interest in staying with the new organization; all staff members from both organizations decided to stay. Board members of both FHNHS and GNHDF also were willing to serve on the board of the new organization.

On May 30, 2000, the NHSGN board of directors convened and reviewed the conflict of interest policy and bylaws, which took essentially the same form recommended by the Merger Committee. Final ratification was scheduled for the board’s next meeting, an all-day retreat. This was the first chapter in the process of launching NHSGN. Bylaws were formally adopted. New directors were formally seated and officers were formally elected. And a strategic plan for the new organization was carefully outlined. By the day’s end, the merger was finally, officially done. Several months thereafter, NRC completed its chartering process and delivered the prize that FHNHS and GNHDF had kept in sight from the beginning of their merger talks: a NeighborWorks charter. This was the final chapter in the process of merging the two organizations.

John Emmeus Davis is cofounder and partner of Burlington Associates in Community Development, LLC, a national consulting cooperative established in 1993.This article was adapted from Bridging the Organizational Divide: The Making of a Nonprofit Merger, commissioned by the Neighborhood Reinvestment Corporation, 2002. www.nw.org.

Resources:

Nonprofit Mergers: The Power of Successful Partnerships, by Dan H. McCormick. Aspen Publishers, Inc., 2001.

The Nonprofit Mergers Workbook, by David La Piana. Amherst H. Wilder Foundation, 2000.

The 5 Life Stages of Nonprofit Organizations: Where You Are, Where You’re Going, and What to Expect When You Get There, by Judith Sharken Simon with J. Terence Donovan. Amherst H. Wilder Foundation, 2001.

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